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31 January 2013
After the Collapse of the Large Corporation –
Progressivism 2.0?
Gerald Davis
Israel Drori
1
A landmark moment in the development of progressive politics in the U.S. was
Theodore Roosevelt’s “New Nationalism” speech in Osawatomie Kansas in August
1910. Roosevelt described the social problems of the early twentieth century –
soaring inequality, concentrated economic power, the corrupting influence of
corporate money in politics, and the shadowy role of Wall Street – and called for a
more robust Federal government to rein in the national-scale corporations that were
beginning to dominate the economy.
2
The problems we face today are nearly identical to those diagnosed by Roosevelt. The
root cause of our current situation, however, is not the rise of the large corporation
but its collapse, and the proper response is not more centralization but a better match
between the locus of governance and the shape of the new economy.
3
When Roosevelt spoke in 1910, the corporate economy was hardly a decade old. The
completion of a coast-to-coast system of railroads in the second half of the nineteenth
century enabled a continent-wide market for goods, and technological advances in
manufacturing created economies of scale that favored large-scale producers. A wave
of mergers around the turn of the century combined hundreds of regional producers
into a handful of national oligopolies. In 1901, J.P. Morgan combined the largest
steelmakers into U.S. Steel, the nation’s first billion-dollar corporation. Morgan and
his fellow bankers continued to serve on the boards of the new corporations they had
helped finance. The economic dominance of the Wall Street “Money Trust” aroused
the ire of critics such as Louis Brandeis and led to a series of reforms aimed at limiting
the power of bankers, ultimately culminating in the Glass-Steagall Act of 1933. For
generations afterwards, banking in America remained relatively small and local.
4
The power of corporations was not so easily curtailed. As Roosevelt put it,
“Combinations in industry are the result of an imperative economic law which cannot
be repealed by political legislation…The way out lies, not in attempting to prevent
such combinations, but in completely controlling them in the interest of the public
welfare.” At the time, the Federal government was tiny relative to the new corporate
sector; the nineteenth century agrarian economy had been governed at the state
level. The “new nationalism” Roosevelt advocated therefore required building a more
muscular Federal government that was a better match for the new corporate giants.
5
Over the course of the twentieth century, American corporations expanded within the
limits defined by the Federal government. Employers took on the provision of
pensions and health insurance for workers and their families. They afforded stable
employment and opportunities to move up. Some education and an entry-level
corporate job provided a ready path to a middle-class life. This era has now passed.
6
Today’s social problems are strikingly similar to those of 1910, but their sources are
very different. Our struggles today are rooted in the disintegration of the American
corporation and the uncertainties of a new economy.
7
The economies of scale that favored giant corporations in the twentieth century have
given way to a networked information economy that encourages disaggregation. Think
of this as the Nikefication of the American economy. Nike focuses on design and
marketing while contracting out production to suppliers in East Asia. In spite of being
Davis & Drori, GSJ View (31 January 2013), page 1
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the world’s largest sporting goods company by far, Nike has only 38,000 employees
around the world – less than the number GM hired in 1941 alone. The Nike model has
spread widely in sectors from clothing to consumer electronics to pet food to
pharmaceuticals; meanwhile, the largest employers in the U.S. are overwhelmingly in
retail, where wages, benefits, and opportunities for advancement are modest at best.
8
Nikefication greatly reduces the advantages of massive corporate scale, allowing new
entrants to grow (and collapse) rapidly with relatively few employees. The bestselling U.S. television brand last year was not Sony or Samsung but Vizio, located in
Irvine, California. Vizio outsources production and distribution, much like Nike, and
has introduced scores of new high-tech products – all with fewer than 200 employees.
Even the ubiquitous Facebook has only 4000 employees. Small-scale local production
has also seen a renaissance. Thanks to cheap production technology and the Web, local
producers have entered dozens of industries formerly dominated by national giants,
from microbrewing to rooftop farming. Small is the new big.
9
The fear with companies like Vizio, or similar firms in other industries, is not that they
are too powerful, but that they are too weak, that is, that they are too ephemeral to
carry out the policies that we expect of corporations. Why should a temporary
company be expected to provide health insurance or pensions to workers who will
outlive them by decades? And who can expect a 200‑employee company to provide
long-term careers or job ladders?
10
The problem is bigger than we realize. Turnover in the so-called blue chips has never
been higher: while most companies in the Dow of 1930 were still there sixty years
later, only three are left today: two oil companies and GE. The U.S. had fewer than
half as many public corporations in 2012 as it did in 1997, and the number declined
every year but one since 2000. Even Wall Street firms are not invincible: of the five
major independent investment banks in early 2008, only two are left.
11
The old corporate system is no longer meeting society’s needs for employment and
benefits. It has also turned up short for investors and retirees: real returns for the
first decade of the twenty-first century were worse than any decade in U.S. history,
and the S&P 500 index is still roughly where it was in early 2000.
12
These are not problems that a central government can solve by prodding corporations
to do more, as in past generations. It would take more than 3000 Facebooks to
employ all of the jobless people in the U.S. today. Even if U.S.-based multinationals
were to bring all of their work back to the U.S., it would be done in high-tech facilities
with relatively few workers – not out of malice, but due to Roosevelt’s “imperative
economic laws.” With corporations no longer equipped to provide middle-class
employment, benefits, and career mobility on a national scale, the current economy is
like an inscrutable game of chutes and ladders, lifting a few kids from their dorm
rooms to the economic stratosphere while millions of others drop unexpectedly into
long-term unemployment.
13
The tools of governance suited to a U.S. Steel economy are not those suited to a
Facebook economy. Just as national defense had to adjust to a world in which security
threats are more likely to come from non-state actors than from other nation-states,
our approach to economic security needs to adjust to a post-corporate economy.
14
What is the progressive response? When President Obama visited Osawatomie in
December 2011 to update Roosevelt’s agenda, Obama’s prescriptions – affordable
higher education, worker training, improved infrastructure, financial reform – were
laudable but generic fixes, equally applicable to Egypt or Thailand. But they will do
little to address inequality and concentrated power in the U.S. Obama is correct that
America’s strength is its ability to innovate, in both technologies and economic models.
But the new innovative technologies favor a kind of cosmopolitan localism. In a Webbased economy, there are opportunities for small- and medium-sized local businesses
with global access. And it is likely to be local innovators, not big corporations, who will
be in the vanguard.
15
The economic strains we face today cannot be addressed either by a quixotic return to
states’ rights, as proposed by the Tea Party right, nor by more centralized
governance, as proposed by paleo-progressives, but by strengthened local economies
organized along principles that fit with the new shape of our coming post-corporate
economy. There are hints of such models in post-industrial cities, like the Evergreen
Cooperative system in Cleveland, but what is needed now is a more thorough
assessment of the economic underpinnings of a new progressivism. Unlike the
twentieth century version, which favored centralized solutions, progressivism 2.0
could mark the emergence of a more democratic and cosmopolitan localism.
[PDF]
Davis & Drori, GSJ View (31 January 2013), page 2
Note
Davis’ latest book, Managed by the Markets: How Finance Re-Shaped America,
documents the influence of financial markets on American corporations and society.
Drori’s forthcoming book Genealogical Evolution of Israeli High Tech (Stanford
University Press) analyzes the rise of Israel’s entrepreneurial economy.
Copyright © GSJ & Author(s). ISSN 1557-0266
GSJ is published at Stony Brook University by the Stony Brook Institute for Global Studies (SBIGS)
Davis & Drori, GSJ View (31 January 2013), page 3